ASIA CREDIT CLOSE: Traders wary of Thailand, but contagion limited

Fri May 23, 2014 5:03am EDT

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HONG KONG, May 23 (IFR) - Asian credit markets finished the week on a positive note even after Thailand's army chief seized control of the government following a declaration of martial law.

The political instability in Thailand gave investors a reason to buy hard-currency bonds, and spreads have remained relatively stable as a result.

However, the 5-year CDS ended the week 6bp tighter at 133bp on hedging needs, according to a credit analyst.

"The turn of events is not a surprise as we have seen this uncertainty for a long time and it has probably been priced in," said the analyst. "The stability in hard cash is likely to continue."

A Singapore-based trader pointed to the sturdiness of Thailand's US dollar-denominated credits, citing that Bangkok Bank's 2.816% 2018s have remained at a 220bp spread for the past month.

Still, Thai stocks fell to their lowest in nearly two weeks today.

Pertamina's USD1.5bn 30-year bond, which priced at par to yield 6.45% overnight, was last quoted at 100.875 on the bid side.

The bonds helped extend a rally in Indonesia's sovereign debt since yesterday, when the deal launched. Indo's 2044s climbed half a point.

Nan Fung Treasury's new USD200m Reg S 2024s strengthened on a spread basis to 231bp/233bp after pricing overnight to yield 240bp over US Treasuries. The bonds attracted a USD2bn order book.

The Chinese investment-grade property sector was resilient, as spreads tightened 5bp-15bp. China Vanke's 2018s, among the better performers, narrowed 15bp.

"At least for these higher-rated ones, the perceived default risk is minimal and sentiment has improved," according to a Singapore-based trader.

"Dealers are light there and we are seeing continued buying from real-money and retail investors. Some fast-money investors are also covering shorts."

The confidence in Indian Prime Minister-elect Narendra Modi's Government has also helped tighten the yield curve for Indian credits by as much as 10bp, and the country's bonds are now trading closer to Thailand's, said another trader.

News that India's finance ministry is working on a proposal to cut welfare spending and rein in the deficit to steer clear of a sovereign credit downgrade also supported bonds from the country.

frances.yoon@thomsonreuters.com

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